Oil falls; supply, demand issues loom

Government changes give cocoa a boost

NEW YORK (CBS.MW) -- Oil futures dropped below $30 a barrel Friday as concerns over strong summer gasoline demand and rising inventories continued to tug at the market.

On the New York Mercantile Exchange, June crude fell 60 cents to $29.73 a barrel. On Thursday, the contract closed at its highest level since the $30.60 closing high seen on March 7.

“We still see the market as overvalued relative to both its rising inventories and the OPEC price band,” said a daily report from analysts at New York-based IFR Pegasus.

OPEC’s price band plan allows an increase in production if OPEC crude basket prices (an average of the different types of crude oils) rise above $28 a barrel and a decrease if prices fall below $22 a barrel, ultimately preventing prices from remaining above $30 a barrel for long.

Meanwhile, recent concern over tight gasoline supplies ahead of the summer driving season brought gasoline futures to a high of 99.90 cents a gallon on Thursday.

However, gasoline dropped more than 2 percent Friday on concerns that the U.S. may allow the sale of conventional gasoline if supplies of the cleaner-burning fuels run out, Bridge News reported.

“If the forecast of strong demand and weak supplies continue, we could see gasoline following in the foot steps of heating oil,” said a daily report from Phil Flynn, a senior energy analyst at Alaron.com, a brokerage house in Chicago.

Heating oil prices have been heading higher because of “the lack of supply carried over from last winter and strong demand coming from our farmers who are industriously planting,” Flynn said.

Demand has caught up with and surpassed the available supply, causing a “run up” in prices with refiners nearing 100 percent of production capacity, he added.

On Friday, June unleaded gasoline lost 2.98 cents to 96.05 cents a gallon, while June heating oil rose 0.43 cent to 80.30 cents a gallon.

Supply and production concerns

Overnight, Mexico’s Energy Secretary Luis Tellez said he wouldn’t rush to a decision regarding an increase in production in light of the rising oil prices. See full story.

Meanwhile, the market has been keeping a close watch on two key weekly petroleum supply reports. The latest data released this week reflected conflicting data on crude and distillates stocks and a rise in gasoline inventories. See related story.

Natural gas supplies are also a focus in the energy markets ahead of the summer season, which prompts the use of the commodity for air conditioning.

June natural gas was up 9 cents to $3.80 per million British thermal units on Nymex. The contract has hit consistent three-year highs since the American Gas Association said Wednesday that natural gas supplies rose within expectations last week. See related story.

Gold steady ahead of Bank of England auction

June gold rose 80 cents to $274.50 an ounce. July silver was down 1.5 cents to $5.04 an ounce on the Commodity Exchange division of the New York Mercantile Exchange.

On May 23, the Bank of England will hold the first in a series of six planned gold auctions, selling about 25 metric tons of the yellow metal at each sale for a total of 150 metric tons over the course of the 2000 to 2001 financial year.

Comex gold warehouse stocks, as of late Thursday, were down 32 ounces to 1,203,356 ounces. Silver stocks were up 1,203,356 to 102,516,130 ounces.

In other metals highlights, July copper was down 0.25 cent to 84.25 cents a pound. The London Metals Exchange said copper supplies fell 3,225 metric tons to 632,575 as of early Friday. Comex stocks fell 477 to 74,763 short tons.

June palladium was up $5.40 to $579.90 an ounce while July platinum was up $17.20 to $523 an ounce.

Cocoa futures boosted by Ivory Coast government changes

Cocoa futures rose to a one-month high Friday, boosted by concerns over the outcome of a change Ivory Coast’s government cabinet.

July cocoa added $27 to $856 per metric ton on the Coffee, Sugar and Cocoa Exchange. It hit an intraday high of $865, it’s highest level since the $884 high seen on April 19.

Bridge News reports that the Ivory Coast’s President Robert Guei has decided to replace ministers within his cabinet with more officials from the military.

Prior to the move, the government was considering a plan to reform region‘s cocoa industry, including plans to cut production.

July sugar rose 1.4 cents to 7.21 cents a pound and July coffee was up 3.75 cents to 97.85 cents a pound on the heels of the gains.

The Association of Coffee Producing Countries is considering a retention plan at a meeting today among coffee producers that could eventually help the sagging price of the commodity through efforts to hold back supplies, Bridge News said.

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